Cost Pass-through under Delegation
نویسنده
چکیده
The rate of cost pass-through exceeds 50% under strategic delegation of decision-making to managers with sales revenue contracts regardless of the number of rms in the industry and demand curvature. This contrasts sharply with pro t-maximization, for which cost pass-through can take on any positive value. The key intuition is that rms under delegation act as if they faced more rivals than they actually do, thus pushing cost pass-through towards 100%. Cost pass-through with market share contracts is similarly bounded below, and this note also generalizes existing results on equilibrium characterization for this case. Keywords: Cost pass-through, excise taxation, executive compensation, market share, strategic delegation JEL classi cations: D43, H20 My thanks are due to Alberto Behar, Ian Jewitt, Meg Meyer and Max Tse for helpful discussions, and to the editor and two anonymous referees for their comments and suggestions. Financial support from the ESRC in the initial stages of this project is also gratefully acknowledged.
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